Environment Committee on June 12th, 2019

[The Chair, Liberal, John Aldag]

I call the meeting to order.

I have been reminded that we can receive testimony with reduced quorum. We have four members, including two members of the opposition, so we will get started.

Welcome to our guests today. We have, from the Office of the Parliamentary Budget Officer, Yves Giroux, Parliamentary Budget Officer, and Jason Jacques, senior director, costing and budgetary analysis. Welcome to the committee today.

We'll get into your opening statement. We'll give you up to 10 minutes. Then we'll get into our rounds of questions and answers for an hour. In one hour, we'll end and go into closed session. That's how the day will go today.

Just so everybody is reminded, we had a motion brought forward that the committee schedule one meeting with the Parliamentary Budget Officer to discuss the recent report, “Fiscal and Distributional Analysis of the Federal Carbon Pricing System”. That's the intent of the meeting today, and we'll spend one hour having that discussion.

With that, Mr. Giroux, I'll turn it over to you for your opening statement.

[Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer]

Thank you very much, Mr. Chair and members of the committee. It's a pleasure to be here.

It's my first appearance before the environment committee. I have to admit that I'm a bit nervous seeing unknown faces and not knowing what to expect yet, but so far I have a very good impression, so I'm becoming less and less nervous.

Thank you for the invitation. I'm pleased to be here, as I said, for my first appearance to discuss the analysis of our report on the federal carbon pricing system, which was published at the end of April.

I'm joined by Jason Jacques, who is the director general in my office. Together we'll try to respond to your questions to the best of our capacity.

As you know, the Parliamentary Budget Officer provides parliamentarians with independent and non-partisan economic and financial analyses. As the legislation indicates, we provide those analyses to raise the quality of parliamentary debate and promote greater financial transparency and accountability.

In accordance with the mandate I have been given, my office has produced a fiscal and distributional analysis of the federal carbon pricing as implemented in Ontario, New Brunswick, Manitoba and Saskatchewan.

Our report provides an independent estimate of the revenues generated under the federal carbon pricing system. It also estimates the net fiscal impact on households in different income groups in the four provinces that do not have carbon pricing plans that meet federal standards.

Based on our analysis, we estimate that the federal government will generate $2.6 billion in carbon pricing revenues in 2019-20. The vast majority of these revenues, $2.4 billion, will be generated through the fuel charge, and the balance, roughly $200 million, will be generated by output-based pricing. In addition, we estimate that by 2023-24, carbon pricing revenues will increase to $6.2 billion, with fuel charge proceeds accounting for $5.77 billion, and OBPS—which I much prefer to “output-based pricing”, which I have a hard time pronouncing—accounting for the rest.

Our report also studied the impact of the carbon price on households, based on annual income level and region. Regions currently using carbon-intensive energy, such as Saskatchewan, can expect higher costs.

The federal government has stated that all proceeds from the fuel charge will be returned directly to households and to particularly affected sectors in Ontario, New Brunswick, Saskatchewan and Manitoba. Our findings indicate that under the government's proposed climate action incentive payments plan, most households will receive more than what they paid in fuel charges.

Before proceeding to your questions, I'd like to take a moment to inform the committee of our next publication. Tomorrow morning, we will be releasing our latest carbon pricing analysis report. This report will provide an independent estimate of the additional carbon price that would be needed to achieve Canada's greenhouse gas emissions target in 2030 under the Paris Agreement, as well as an estimate of the corresponding impact on the Canadian economy.

I don't typically use the full 10 minutes and I don't plan to deviate from that, as I would like to let you ask as many questions as you want. Jason and I would be pleased to respond to any questions you may have regarding our fiscal and distributional analysis of the federal carbon pricing system report or other PBO analysis, but I should state that I will probably be very reluctant to take questions from Mr. Fisher, given the jersey that he wears today.

[Some hon. members]

Oh, oh!

[Yves Giroux]

Thank you.

[Mike Bossio, Liberal, Hastings—Lennox and Addington, ON]

That's why we didn't put him on the list. We don't care for his jersey either.

[Voices]

Oh, oh!

[The Chair, Liberal, John Aldag]

Thank you so much for your opening comments. We've actually been a fairly amicable working group over this term. We'll see if that carries through today.

I'd also like to welcome Mr. Chong as a guest to our meeting today.

With that, I will also mention that we use a card system here. When there is one minute left in the round of questions, I give the one-minute warning, and then when time is up, I give the red flag. I don't cut you off in mid-sentence. Just conclude your thought and we'll go on to the next round of questions.

First up, on the government side, we have Mr. Bossio for six minutes of questions.

[Mike Bossio, Liberal, Hastings—Lennox and Addington, ON]

Thank you, Chair.

Thank you so much for being here today. We've been waiting with anticipation to look at your report and hear what you have to say today. I look forward to hearing the answers to the questions.

This is such an important issue. As we've seen, there is much misinformation out there around the impact of the price of pollution that our government has implemented, with many trying to say that we have it wrong, that it's actually going to destroy our economy and kill jobs and bring an inordinate amount of devastation to the most vulnerable in our society. I'm happy to see in your report that you actually have confirmed what we have been saying all along: that most Canadians will be better off with a price on pollution. They will receive more in the rebate than they will pay out.

I'd like you to break down the numbers a little further. We hear it's not just those who are driving to work, but those who live in rural communities and the higher price of groceries and so on. Can you give us a sense of the different areas used in your analysis to make the determination that eight out of 10 Canadians will benefit more from the rebate than they will pay out in the price on pollution?

[Yves Giroux]

Sure.

Obviously we looked at the direct costs through higher fuel prices and higher prices on energy that households directly consume, such as the gas they put in their cars and the heat they need to generate in winter. God knows it's been long this year. We also looked at the higher prices for gas and for electricity generation in provinces where electricity is generated using fuel-based sources, such as Saskatchewan. We factored in these direct costs paid by households, but we also know, obviously, that most of the goods that Canadian households buy also have a fuel component to them.

For example, if you buy something at a supermarket, it's been transported to the supermarket. The transport that's inherent in these goods that people buy has a fuel component, so we used input/output tables to figure out how much carbon-based fuel is input in each production factor in each transaction, in each good that consumers buy, and factored that into the equation, assuming that all of the increases get passed on to consumers, which is consistent with the literature. We estimated the increase in the prices or the amounts that households will have to pay for some goods, as well as their energy consumption.

That's the payment side. On the other hand, we also looked at how much the federal climate incentive plan will reimburse Canadians, assuming that 90% of the proceeds from the charge will be reimbursed to households. We did that as an average, but we also looked at consumption patterns based on income quintile, and that's why we have different net impacts by income quintile.

Lower-quintile households obviously tend to spend less. There are fewer people in lowest-quintile households. Obviously, if there are two working persons in the household, the household tends to be higher up on the income scale. As you go higher on the income scale, you tend to find that there are more people in the household, and the larger the household, the more they tend to consume fuel-based products, as well as energy in general. That's how we derived the estimates that we have.

In summary, the conclusion is that the majority of households will receive more on a net basis than they will pay. The exception is the 20% of households with the highest income. They will be net contributors.

Of course, that's an average. It doesn't mean that every single household in the lower-income quintiles will be receiving more. It depends on the particular lifestyle and consumption patterns. That's a criticism that's been addressed to us, but obviously it's an average by income quintile and by province.

[Mike Bossio, Liberal, Hastings—Lennox and Addington, ON]

To recap, you've looked at both the direct and indirect costs of a price on pollution to the household. You have then looked at the average rebate that all households will receive, and based on that, the vast majority, eight out of 10 Canadians, will receive more on the rebate than they will pay out on the price on pollution.

[Yves Giroux]

That's correct.

[Mike Bossio, Liberal, Hastings—Lennox and Addington, ON]

I think I'm pretty much out of time, Chair. How much time do I have?

[The Chair, Liberal, John Aldag]

You have 20 seconds.

[Mike Bossio, Liberal, Hastings—Lennox and Addington, ON]

Okay, I guess I'll leave it there, then. I will pick it up again.

Thank you.

[The Chair, Liberal, John Aldag]

All right. Thank you.

I'll move over to Mr. Godin for his six minutes' worth of questions.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

Thank you, Mr. Chair.

Gentlemen, first of all, I want to welcome you. Thank you for being here. Your jitters are long gone, Mr. Giroux.

Mr. Fisher, unfortunately, I'm not wearing my Blues sweater now, but I'd be happy if I were. We'll talk about it tomorrow morning.

Mr. Giroux, I have a question for you. I'm trying to understand. You are showing us a fiscal analysis. I know those are projections, but could you tell me what you used to estimate the costs and revenues by quintile, by province, per capita. It's quite complex.

What data did you use to obtain those results?

[Yves Giroux]

It is true that there are many figures and calculations in those data.

We first looked at household consumption by province and by income quintile. Those data are available from Statistics Canada, which regularly conducts surveys to determine household consumption patterns, in terms of energy, goods and services. Those data are important for determining household consumption by quintile and household make-up, meaning the number of adults and children, which helps to determine what carbon pricing will represent for the households. We already know the future cost of one tonne of carbon: between 2018 and 2022, it will increase from $20 to $50.

The impact of the increase on the prices of gasoline, natural gas and other carbon-based fuels can be determined with some degree of certainty. For example, we know that one litre of gasoline generates about 2.2 kilograms of carbon. So if the carbon price is $20 per tonne, it is easy to calculate that it is 4.4 cents per litre of gasoline. That's how we get the price that consumers will have to pay.

To determine the net amount, we looked at how much consumers will receive in payments or discounts. In the last budget or in the fall economic update, the government announced the amount of rebates or refunds that will be paid to households. This amount is fixed and is not based on consumption, but on the make-up of the households. It will not be influenced by income. By looking at how much households will pay and how much they will receive, we get the net amount per quintile, of course.

As I mentioned, those are averages. It is possible that a household's consumption pattern may affect what the household will pay. For example, someone who uses their car a lot and heats their home with natural gas or oil will pay much more than someone who lives downtown, uses public transit or walks to work. There are differences within quintiles. That being the case, we came up with averages to provide an overall picture.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

According to your estimates, will GHGs remain stable, increase or decrease?

[Yves Giroux]

We looked at elasticity, that is to say the impact of a price on the tendency of households and businesses to use or reduce the use of energy sources. Greenhouse gas emissions will decrease, but not drastically. They will decrease by 4% or 5%, I think—I don't remember the exact percentage—and this decrease will be largely due to the shift from electricity sources that emit greenhouse gases to more emission-neutral sources.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

If possible, I would like you to provide the committee with the model indicating the reduction in greenhouse gases by 2030.

[Yves Giroux]

Yes.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

Earlier, you mentioned the 90% of the revenues being reimbursed to the public. You said it was a fixed amount, clearly determined, that did not vary according to consumption. In addition, it would not be directly related to the amounts generated by the carbon tax.

Did I understand correctly?

[Yves Giroux]

I probably misspoke.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

Unless I misunderstood.

[Yves Giroux]

Let's just say that I misspoke. I do that a lot.